SMEs relatively unfazed by the Crimean crisis

• SME business climate continues to brighten
• Satisfaction with current business is growing; expectations are virtually as good
• In contrast, large enterprises are more sceptical about the future

SMEs appeared very satisfied with their business in March according to the current KfW ifo SME Barometer. Small and medium-sized enterprises are observing the Crimean crisis with a sense of a proportion and continue to focus on recovery. Despite the new economic risk in the international arena, the SME business climate has risen for the sixth time in succession, this time by 0.8 points to 22.5 balance points. The last time the climate indicator reported a higher figure was a little less than three years ago in June 2011. The SMEs rate their current business situation as particularly positive, while business expectations are just slightly more cautious.

Assessments of the current business situation have improved by 2.3 points to a two-year high of 30.9 balance points. As a result, the current situation indicator for the first quarter is, on average, up by a remarkable 5.0 points compared with the previous quarter.

Meanwhile, expectations for future business are marginally declining (down 0.7 points to 13.9 balance points). The slight consolidation is no cause for concern, since as a reference point for expectations current business has already reached a very high level, which will be increasingly difficult to improve upon.

Large enterprises operating on a very broad international scale appeared to be far more sceptical than SMEs in March, adjusting their business expectations drastically downwards by 5.5 points to 13.3 balance points. Freshly emerging fears with regard to the potential negative impacts of the Crimean crisis are likely to have played as much of a role as the monetary situation in emerging markets, which has been fragile for quite some time now. However, as large enterprises' assessments of the current situation were rising twice as quickly than those of SMEs in March (up 4.1 points to 25.8 balance points), the decline in the business climate on the whole is being kept within tight limits (-0.8 points to 19.7 balance points) despite the pronounced adjustment in expectations.

The marked improvement in both groups' business situation assessments over the last few months – with the 6.3 point quarterly gain for large enterprises being even more pronounced than that of SMEs – indicated a successful economic start to the current year. The actual economic performance is expected to expand more strongly in the first quarter of 2014 compared with the closing quarter of 2013 (up 0.4% compared with the previous quarter), whereby consumers are also likely to have made a significant contribution. One indication of this is the ever-rising SME retail sentiment (up 3.2 points to 26.1 balance points), which posted a three-year high at the end of the first quarter.

"The KfW economic forecast remains on track in light of the current sentiment. The surge in growth at the start of the year is a good starting point for economic activity. Despite the likelihood of more moderate quarterly rates from summer onwards, Germany will be able to grow by 2% overall this year," says Dr Jörg Zeuner, Chief Economist at KfW. "We are still expecting 1.6% real growth for 2015, which is a decent rise!" However, risks on a global scale, including the more recent Crimean crisis, harbour significant potential for disappointment. The Chief Economist then goes on to add that this potential should be mitigated by the monetary policy encountering deflationary trends in Europe, for instance. "Germany would welcome further growth in domestic demand, especially more investments," continues Dr Zeuner.

A detailed analysis including data tables and charts relating to the current KfW ifo SME Barometer can be found at www.kfw.de/mittelstandsbarometer.